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September 30, 2016 | Contagion

A best-selling Canadian author of 14 books on economic trends, real estate, the financial crisis, personal finance strategies, taxation and politics. Nationally-known speaker and lecturer on macroeconomics, the housing market and investment techniques. He is a licensed Investment Advisor with a fee-based, no-commission Toronto-based practice serving clients across Canada.


While we all wait with baited (sic) breath for that moderate correction in the Toronto real estate market (I believe that is what you are calling for) do you have any comments on what may be far more important – the decline of Deutsche Bank? You spent a fair bit of time clarifying the bail in clause for Canada…but what about Europe as Merkel stares down the barrel of whether to bail-out or kill the Euro? Regardless….if Deutsche goes down the contagion into the financial system will be severe. — Blog comment

So many doomers. So much angst. Such quivering. So much to go wrong. Decline, collapse & contagion. The comments section of this pathetic blog is a Greek chorus of despair some days, scaring the poop out of innocents who wander in here just looking for a tummy rub.

This Deutsche Bank thing is a great case in point. Germany’s an over-banked place, and DB is not a superbly-run company. Worse, its knickers got caught in the US justice system and American regulators have been mercilessly pursuing it to settle charges related to bad mortgages. Between higher state-imposed capital standards and runaway legal bills, DB’s stock has lost half its value. Finally, with a market cap of about $14 billion (what all the shares outstanding would sell for), the bank was staring at a fine of exactly that amount – effectively wiping its equity out.

Meanwhile tough-gal Chancellor Angela Merkel, facing an election and Trumpian forces, had made it clear Germany wouldn’t be bailing out bankers. So the stock sank further. The GreaterFool steerage section wailed piteously. Breasts heaved. And we got dark warnings of a contagion in the financial system that would surely punish your portfolio. Worse than Bear Sterns, baby, they cried. This sucka’s goin’ down.

Well, not so fast. The latest news is DB will owe US regulators about $5 billion, not fourteen. “Deutsche Bank is not Lehman,” a fancy Wall Street strategist commented, stating the obvious. After all, eight years of increased regulation, higher capital requirements and international controls have hardened all big banks against barbarians. This is not 2008.

Well, DB stock soared Friday. Up about 6.5%, with stock markets following. The S&P is ahead 6% this year while Bay Street has added 13%. Preferred ETFs are up 16% since January and even bond funds have gained three times more than a GIC, while being liquid and less taxed.

In short, Investors 1, Doomers 0. The same happened with Brexit, and it’ll occur again with Trump. Ditto for Deutsche Bank, ISIS attacks and even next week’s four sold-out Adele shows in Toronto. Balanced portfolios are designed to withstand whatever horrors modern life can throw at them, and stay standing. Ignore the fools telling you to go to cash before the US election, for example, which would do nothing except waste time and create anxiety.

History proves that missing the best days in the market is far more consequential than avoiding the worst ones. But fear’s the most dominant of emotions, so many people would rather hide from danger than build a logical portfolio and ignore volatility. Worse, the financial landscape’s full of questionable advisors who truck on trepidation. They tell clients market-timing works, they can avoid unforeseen declines and that it’s prudent to sit in cash.

Some of them keep people on the sidelines for months, or even years, while markets move to new highs. All the while, they collect fees. Sad.

Timing markets really doesn’t cut it. Over 90% of mutual funds which pay managers big bucks to add ‘alpha’ end up crapping out. Just buying an index fund gives you a far better chance of making money, especially when the 2%+ mutual fund MER is stripped away.

Similarly, stock-picking advisors, financial cowboys and suspender-snapping, bow tie-twiddling Bay Street dandies are in the same game. They use fear of loss and greed for gains to lure people into believing they have a special insight and can outperform the rest of humanity, plus high-frequency-trading algos. But they can’t. It’s all guesswork. And meanwhile decades of experience show a balanced and globally-diversified portfolio, rebalanced once or twice a year, keeps investors on an upward path.

As a rule, actively-managed funds suck. So do alpha-seeking equity flippers. Most DIY market timers drown. And at the bottom of the pond live the doomers.

The most valuable asset you have is time. Don’t let some insecure flake – or insincere fake – steal it from you. Invest carefully, then take your dog out. Don’t look back.

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September 30th, 2016

Posted In: The Greater Fool

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